Prediction: This Will Be Micron's Stock Price at the End of 2027 (Hint: It's Well Over $1,000)

Micron Technology (NASDAQ: MU) has become one of the quickest rising stocks in the market. Last year at this time, it was trading for under $100 per share. Now, it's well over $700. The question for investors today is, can that rise continue, and what is a reasonable price target for the end of 2027?

Let's take a look at where Micron could be headed, as it could be a no-brainer buy now.

Image source: Getty Images.

Memory chips are in short supply

Micron is one of just a few makers of memory chips, which are utilized in nearly every computational device. This industry is notoriously cyclical, and there isn't much that sets one manufacturer's products apart from another. As a result, memory chips are basically a commodity, and the primary thing that moves their prices is the law of supply and demand. Right now, nearly all of the available supply -- including all the chips that will be made in the near future -- has been sold, and demand is at an all-time high. Micron told investors during its last conference call that it only has enough production capacity to meet half to two-thirds of medium-term demand. That's a major issue, and Micron's peers are experiencing similar conditions.

Micron is racing to get more production capacity available, and expects that its Idaho fabrication facility will be up and running by this time next year. It also has plans for more production facilities around the globe. Its peers are also building new fabs to take advantage of high demand, and that will help reduce the supply crunch, unless demand growth outpaces it. That's a real possibility, at least for a while: Micron predicts that the total addressable market for high-bandwidth memory (HBM) will rise from $35 billion in 2025 to $100 billion by 2028. So, even if production triples from now until 2028, there still could be a shortage of chips. As long as demand for memory chips is elevated beyond what manufacturers can produce, Micron will have pricing power, and the stock will benefit.

However, this level of memory demand won't last forever, and with all the players making efforts to increase supply, the pendulum should eventually shift. It takes several years to bring a new memory chip foundry online, so there's always a big lag between when projects are started and when new supply arrives. Between that and the competitive nature of the space, prior build-outs have always overshot the mark, leading to an oversupply of memory relative to demand. So when this high-demand supercycle is over and additional supply meets easing demand, the price of memory chips could crater.

That wouldn't bode well for Micron's stock. For this reason, investors who own shares will need to keep a close eye on the tech space so they can avoid getting caught up in a major sell-off if demand starts to decrease. But that likely won't happen by 2027, so what can investors expect of its stock price?

How do you value a cyclical business?

The cyclical nature of Micron's business makes valuing the stock much harder. Its long-term average price-to-earnings ratio is less meaningful to gauge the stock by, as Micron's profits rise and fall steeply. Additionally, during upswings in the cycle, Micron's stock usually looks really cheap because the market is unwilling to give it a valuation that fully reflects its prosperity, as investors know the cycle will inevitably flip at some point. Right now, Micron's stock trades for a cheap 12 times forward earnings, but a more reasonable 34 times trailing earnings.

MU PE Ratio data by YCharts.

For reference, the broad-market S&P 500 (SNPINDEX: ^GSPC) trades for 22.2 times forward earnings. I think that for a cyclical business, a valuation that's about half of what the S&P 500 trades for on a forward earnings perspective makes sense. Wall Street analysts project that Micron will generate earnings per share of $102.58 in its fiscal 2027, which ends in August 2027. If we assume memory demand grows another 30% the next year, that would give Micron a forward earnings projection of $133.35 per share. If we assume the market will assign it a multiple of 11.1 times forward earnings (half of the S&P 500), that would indicate a stock price of $1,480 per share -- about double today's level.

That's a lot of upside potential in just one year, and all indications point to memory demand remaining elevated for years. As a result, I think Micron is a smart investment to make now, but investors will need to stay on top of it so that they can respond promptly if demand starts to fall.

Keithen Drury has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Micron Technology. The Motley Fool has a disclosure policy.